Over two years after the Securities and Exchange Commission allleged that ZeekRewards was operating a massive $600 million Ponzi and pyramid scheme, the court-appointed receiver is now seeking to "claw back" millions of dollars in false profits from citizens of foreign countries that include the British Virgin Islands, Australia, New Zealand, and Norway. Kenneth D. Bell, the receiver, has filed several lawsuits recently that target the top "net winners" from each of those countries who allegedly each received more than $50,000 in illicit profits from the scheme - profits that, by virtue of the operation of a Ponzi scheme, are not legitimate returns but rather are simply the redistribution of investor funds.
A "clawback" suit, as it is known in receivership parlance, seeks the return of funds that were transferred to a third party often disguised as the payment of profits or returns. Under state-specific fraudulent transfer laws patterned after the Uniform Fraudulent Transfer Act, a creditor can seek to avoid a transfer made by a debtor to a third-party under several theories, including that the transfer was made with the intent to hinder, delay, or defraud creditors, or that the debtor did not receive reasonably equivalent value for the transfer. While a showing of actual fraud is not required and can be demonstrated through other factors, transfers made from a Ponzi scheme are presumptively made with the intent to defraud due to established law that a Ponzi scheme is insolvent from inception as a matter of law.
Bell hinted last year that in a quarterly report that he soon intended to initiate clawback suits against foreign net winners who had received at least $1,000 in illicit profits from their investment in ZeekRewards. Bell has pursued domestic net winners that received $1,000 or more, and recently received court approval to pursue those individuals through a class action framework that will provide for a more efficient mechanism to pursue those individuals against whom it might have been cost-prohibitive to pursue individual litigation. However, the suits brought against the foreign net winners target only those who profited by $50,000 or more from the scheme, and it remains unknown whether Bell will pursue those who realized lower profits.
The recently-filed clawback suits each target citizens of a separate country who received at least $50,000 in profits from their involvement in ZeekRewards. On December 29, 2014, Bell filed suit against over two dozen Australian investors who allegedly received more than $3 million in false profits. He then filed suit on January 30, 2015 against five British Virgin Islands investors who allegedly collectively received nearly $3 million in false profits - including one investor who alone was accused of receiving over $2 million in proceeds. On February 11, 2015, Bell sued three New Zealand affiliates who allegedly received collective profits of nearly $750,000. Finally, Bell filed a complaint on February 19, 2015, against nearly two dozen Norwegian investors that allegedly collectively received over $1 million in false profits.
Rather than initiate litigation in each of the countries where the net winners reside, Bell is proceeding with the suits in the Western District of North Carolina - where the receivership is being conducted out of and where Zeek was headquartered before its collapse - based on those defendants' contacts with the district through their involvement in (and receipt of funds from) the ZeekRewards program. However, even if the Receiver is able to obtain judgments against those foreign defendants, additional litigation may be required in those defendants' home countries to enforce and collect on those judgments.
To date, Zeek victims have received 40% of their approved losses.
The complaints in each of the lawsuits are below. A special thanks to ASDUpdates for providing the filings.